Even the Richest among Us are Not Immune to the Five Laws of Gold

About a year ago I picked up a used copy of The Richest Man in Babylon at our local JCC’s book sale. Talk about a great example of purchase cost not equaling value obtained—I only paid $0.50 for a book that will continue to guide my financial decisions for the rest of my life.

One of the most striking things about this book is its timeless advice on finances. The author wrote this book in 1926 and placed the story and characters in the ancient civilization of Babylon. And guess what? Six thousand years ago people still grappled with the same financial issues as people did in the 1920s when the book was written, and as do people today. This book will be around forever, and will be passed out over and over again because it has taken what appears to be an extremely complex subject (money and the creation of wealth) and opens up a dialogue any of us could be a part of between a rich man and his willing pupils: a chariot builder and a musician. We may not all comprehend the complex and integrated global financial system, the reason behind the Lehman Brothers meltdown, or the housing crisis, but we can all comprehend the rudimentary principles of finances that are the core to this book and really the core to any financial discussion. Who doesn’t feel dissatisfaction with living paycheck-to-paycheck? What economy does not have a small percentage of rich people versus a much larger percentage of those with meager means? And who wouldn’t gripe about working their lives away without ever being able to get ahead? The solution to these issues are just as simple and clear as they were all along, though we all have a habit of muddying up the waters. Earn money, spend less money than you earn, save the rest of your income and make it grow.

There are many great chapters in this book, but the one I want to focus on details the five laws of gold, or the “save the rest of your income and make it grow” financial principle.

The Five Laws of Gold and Those Who have Disobeyed

There are people out there who make millions and billions of dollars each year. I don’t know about you, but whenever I stumble across their earnings in the press or in an article I am reading and then read about financial devastations they go through just years later, I am always baffled. I always think, give me just one million dollars and I’ll make it last the rest of my life plus leave an inheritance behind. How on earth could it matter if they made a few bad investments or made a few lavish purchases when they are bringing in so much money? As my husband once said in an article here, you cannot outearn your stupidity; that goes for even the billionaires among us. The only difference between the millionaires and the rest of us when it comes to the five laws of gold is the wealthier individuals tend to have thriving businesses and other non-financial assets that they can continue to use for financial gain which allows them to make a quicker financial rebound than the average Joe. But their financial pain will still be great.

Below are the five laws of Gold according to George S. Clason. I am going to cite instances where these laws were not followed by ‘rich’ people and the financial devastation that followed to show you that no one is immune to these laws—not those with meager means, nor those who are rich.

1. “Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.”

One of the best things about making a large sum of money every year is that 10% of this is much more than 10% of what you and I make. Also, the more income you earn, the easier it is to put away savings as everyone needs to spend a certain amount of money on necessities and survival and above that is up to you. Yet many athletes who make unfathomably large amounts of money each year fail to put away 10% of their money for the future. Instead of their large incomes resulting in a financially secure future for when their bodies can no longer perform, athletes often declare bankruptcy after their contracts are up. Sports Illustrated reports that 78% of NFL players go bankrupt just two years after they retire and within 5 years of retirement, 60% of NBA players are broke. As an example, shortly after three-time NBA Championship winner Randy Brown was fired as the assistant coach of the Sacramento Kings he filed for Chapter 7 bankruptcy. One of the lots that were auctioned off was his three championship rings. Compared to his former glory days where he brought in an estimated $15 million in income during his career, the rings brought in just a measly $58,833. This is not even 1% of his previous income. Had he saved just 10% of his gross income over the years he would have had $1.5 million to fall back on. (Paul wanted me to include more well-known examples, but I think those are too easy).

2. “Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of field.”

Profitable employment for your money does not mean tying it up in ridiculously lavish purchases; it means spending money to earn money. The classic case of someone who spent money in their business without even breaking even is famed photographer and hard, passion-driven worker Annie Leibovitz who found herself $24 million in debt in 2009. She won a Lifetime Achievement Award, and is rumored to earn a day rate of around $250,000. Where did her money go? Unfortunately, it appears that her expenses for her craft and passion exceeded her pay. Instead of spending money in order to produce more money (through her art), she spent money for perfection and ended up in the red after many of her jobs. This type of business model will not multiply ones flocks, but rather throw someone into financial ruin.

3. “Gold clingeth to the protection of the cautious owner who invests under the advice of men wise in its handling.”

Celebrities and athletes are in the habit of handing over their finances and trust to financial advisors. They probably don’t want to deal with excel sheets and accounts, and think that they are in more capable hands with someone who is an expert. In many cases, they are completely right. However, some have no hands in their own finances and get themselves into trouble by not participating. Kenneth Starr, financial advisor of many celebrities, reportedly stole $30 million during his reign. Uma Thurman lost $1 million to Starr, whom she had hired to pay her bills and do her taxes. Fortunately she realized what had happened and demanded her money back (which she was given). Sylvestor Stallone sued Kenneth Starr because he advised him to keep his money in the Planet Hollywood restaurant chain while telling others that this investment was going bankrupt. Stallone was said to have lost $10 million (though he later sued and settled out of court with Starr).

4. “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.”

Tori Spelling and Dean McDermott decided that they wanted to open up a bed and breakfast in Fallbrook, California. Tori decided to use part of her inheritance and sell off lots of her old belongings that were sitting in a storage facility in order to lease and renovate this inn (just how much money she invested is hotly debated). Tori and Dean made a reality television show out of this, and viewers watched as the two were given good advice over and over again from people who know the Bed and Breakfast business. Yet Tori and Dean trekked their own path, plowing lots of money into the renovations, as well as time and energy. Their interest waivered as they became new parents, and realized they were not making any money (of course we don’t know how much they made from the reality television show deal). After a couple of seasons they decided to call it quits and headed back out to Hollywood.

5. “Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.”

There are people out there who offer investment returns that are way too good to be true. It works for awhile because of the ponzi-scheme setup, but then when the system blows up most of the people who invested with them collapse. This is the case with Met Pitcher Mike Pelfrey who had invested 99% of his assets with ponzi-schemer Robert Allen Stanford (he reported to the New York Post that 99% of his money was frozen by the Securities and Exchange Commission during the investigation of Stanford, which shows that he must have invested 99% of his money with this schemer).

As the book says, “Wealth that comes quickly goeth the same way. Wealth that stayeth to give enjoyment and satisfaction to its owner comes gradually, because it is a child born of knowledge and persistent purpose.” Unfortunately, there are innumerable cases of people who have no knowledge and purpose with their hard-earned (and sometimes not so hard-earned) money, and it disappears.

For those of you who are not at the point in life where you are worrying about gold; the chapter on Seven Cures for a Lean Purse is a great read as well. Who hasn’t suffered from a ‘lean purse’ from time to time?